Nissan deal and humble pie

I’m increasingly of the view that the fabled Nissan deal struck by Theresa May and Nissan boss Carlos Ghosn is never going to work. There’s clear blue water between what Ghosn is telling his company he got the UK to agree too (i.e that they will compensate Nissan if the UK leaves the single market) and what the government is saying (no payments were promised). Let me illustrate the problem with a thought experiment.

Let us suppose the UK leaves the single market. While the Tories seem to think they can “have their cake and eat it”, the reality is somewhat different. Any sort of restrictions on immigration and the UK is out of the single market. All the other nations in the EU would have to agree to the UK staying in (or joining later) and there is no way that’s going to happen, not if you’ve been listening to what’s being said in other EU countries. Yes Canada can get such a trade deal, but they are the other side of the Atlantic and aren’t being run by a bunch of racist nutters.

Leaving the EEA trade area would create a whole host of problems. For example we’d still be subject to EU food labelling (contrary to current government claims) as that’s actually controlled by the WTO (a bilateral agreement which lets the EU export food to non-EU countries). We’d need to hire a shit load of vets or go vegan (something to do with the slaughter practice of animals, there’s not enough non-EU vets to monitor this and yes those rules still apply if you want to export food abroad), we’d need to hire a small army of trade negotiators before we can even negotiate a deal with say China (and we have barely enough to negotiate a deal with the Vatican). Oh and btw the Chinese are prevented from dumping steel in the EU thanks to another bilateral agreement which won’t apply to the UK after brexit, raising the risk of an immediate trade war (unless the Tories want to see the recently rescued steel mills shut). The banks will also move some of their operations out of the country and sack tens of thousands of UK staff.

Certainly thought, the UK will forced to revert to WTO rules (if the UK can qualify as a member otherwise its chaos), which would slap tariffs of up to 30% onto all UK trade with the EU. UK cars will be hit by a tariff of 10%. A tariff of that scale on every car coming out of the Nissan plant would mean a government subsidy to the tune of several thousand per car and the plant produces about half a million of them per year. So that’s a billion or two a year to keep one car factory going.

Think about that, Theresa May is proposing to spend a few billion a year to keep 7,000 workers employed. That’s between £100,000-£200,000 per worker per year (depending on the breaks). And this could go on for many years (and it could take a decade to sort out any sort of deal….and there’s no guarantee of success at the other end). It would actually be cheaper for the government to simply buy the factory off Nissan, close it down and hand each worker, say half a million each on their way out the door, telling them to use it to sort their life out (pay off the mortgage, retrain, retire).

Even ignoring such absurdities, what about the other car makers?Do you think JLR, a direct competitor with Nissan in the SUV market is going to be happy with them getting a subsidy? No, they’ll sue the government and demand the same for themselves. Now if every UK car maker got the same deal, and really if one gets it they’ll all be entitled, that’s a subsidy from the government of say £3,000 per car (for some vehicles it will be higher, others it will be lower, this is about what you’d expect at 10% on the average cost of UK vehicles sold). The UK makes 2.5 million cars a year, so that’s a cost to the government of £7.5 billion per year!

Oh, and that assumes the EU doesn’t decide that this subsidy is unfair under WTO rules and doesn’t lodge a dispute with the WTO. That would see putative tariffs imposed by the WTO and the EU at a rate of up to 30%, so it could cost the government three times this amount in such a scenario.

And even this £7.5 billion figure is of course slightly less than the current cost of the UK’s EU membership. Add on the costs of propping up the UK’s R&D and universities post-brexit (up to £8 billion), the farmers (£3 billion), the fishermen, the regions (Cornwall and Wales, both in receipt of billions a year in EU structural funds), and we’re looking at a frighteningly high bill, probably tens of billions a year, certainly many times more than it cost to be in the EU.

And these are not one off payments, these are yearly costs. The one off costs of leaving the EU could be as high as €60 billion, if you listen to what the EU is now saying. And with falling tax revenue and a growing deficit problem, quite simply put, these are cheques Theresa May cannot afford to write. Because the banks who lend the government money (and in future they’ll be doing that from Dublin and Paris) will let those cheques bounce.

The UK cannot buy its way out of brexit. There will have to be some pain. And my guess is Nissan workers are going to be those how have to take some of it. Which begs the question, what class of a moron is Carlos Ghosn? Was he always this stupid or did he have to take lessons? (from Trump university I assume). How do you know a politician is lying too you? His/her lips are moving. And if Mr Ghosn is reading this and think’s I’m not being a bit mean, I’ve some magic beans I could sell him, plus a mate of mine is looking to sell the Forth road bridge, I’m sure we could do a deal…..

…..Or perhaps we need to consider the possibility that Mr Ghosn is a little smarter than the average bear (to be honest, falling for such and obvious con trick is entirely out of character for him). Let us consider the following, he knows he was lied too, but that’s okay. He knows the Sunderland plant might not be viable outside the EEA. He’ll have to undertake massive layoffs or shut it down entirely. Its just he’d rather see the government be the bad guy and explain all of this to the plant’s militant workers, as well as helping to pay for the close out costs if the plant shuts.

So the sequence of events will be, he waits until towards the end of the brexit negotiations and its clear the UK is going to leave the EEA. He pops up waving his little letter from the PM and demands she pays up as promised. Given that she can’t afford to do that (as explained above), she’ll hum and haw and backtrack. He’ll say, you lied to me you lied to the Nissan workers, the deals off, I’ve no choice but to shut the plant down (on the eve of an election) and I’m suing the government for the costs of doing that. The government will make a show of resisting this, but then quietly settle the case out of court (they don’t want to face a scenario where a sitting PM has to testify in court, not least because of the political crisis that would emerge if she perjured herself in the witness box a few months before an election).

And we have to consider that Ghosn might be acting under orders from Paris and Tokyo. Nissan is after all a joint French and Japanese operation, which has close links to both of these governments. They know that if the Nissan deal were to collapse like this in the middle of brexit negotiations, it would be setting off a bomb under the UK economy. There would be a chain reaction of other car makers and companies effected by a potential hard brexit coming forward and warning their work forces of looming mass redundancies.

The Tories would be facing going into an election with falling poll numbers. And there ally Corbyn will be gone. Any significant threat of mass layoffs and his pro-brexit stance means he’ll face a rebellion from the labour party’s union supporters, who will hold another leadership contest and see someone else elected leader. Likely this new leader will come from the hard left of the party as a compromise (Owen Smith, Tom Watson, may be even Ken Livingstone). Naturally said leader can expect an immediate polls bounce and the Tories will be faced with the very real possibility of losing an election to a hard left candidate.

Hence they will come crawling back to the negotiating table and take whatever deal the EU offers that keeps them in the single market. They’d sooner face a backlash from the swivel eyed UKIP loons than see the loss of large chucks of the country and numerous marginal seats to militant and recently unemployed workers and a hard left labour party coming to power.

So the Nissan deal means Theresa May won’t be having her cake and eating it. It means she’ll be getting a double helping of humble pie.